Date of Completion

5-3-2024

Degree Type

Honors Thesis

Discipline

Finance (FNCE)

First Advisor

Dr. Dennis Draper

Abstract

Exchange Traded Funds (ETFs) are potent investment vehicles to generate returns from systematic gains in any market. However, they have historically been products created and distributed by large financial institutions. Due to various drawbacks of institutionally available ETFs, many retail traders have begun to create their own custom ETFs. These custom ETFs operate as mini-portfolios and have significant potential to generate alpha, or positive risk-adjusted return, when positioned specifically in growth markets.

In this work I aim to show the potential for custom ETFs in retail trading. In achieving this goal, I have broken this work into two sections. The first section will give a history of ETFs and explain the various ETF investment strategies. The second section will then be a case study detailing the process of creating a custom ETF for the oncology pharmaceuticals industry. In this section I will first give a brief overview of the oncology economy to explain why it is an ideal candidate for a custom ETF. I will then detail the process of creating said custom ETF, including search tactics, inclusion principles, a case study of a high potential passed security, and how I determined portfolio weightings by optimizing the projected portfolio Sharpe ratio.

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